Practical Law

Corporate accountability is high on the agenda this week with the international anti-corruption summit in London. Although this has had a slightly unfortunate prelude when David Cameron was overheard telling the Queen that “leaders of some fantastically corrupt countries” would be attending, the summit is intended to galvanise a global response to tackle corruption and to agree a package of practical steps to:

• Expose corruption so there is nowhere to hide.
• Punish the perpetrators and support those affected by corruption.
• Drive out the culture of corruption wherever it exists.

In the UK businesses are subject to a combination of domestic regulation that imposes specific corporate responsibility (Bribery Act 2010 and Corporate Manslaughter and Corporate Homicide Act 2007), corporate criminal liability for other offences subject to the identification principle and soft regulation for human rights breaches under the National Contact Point process (see our Practice notes, Bribery Act 2010: corporate criminal liability and Impact of the Corporate Manslaughter and Corporate Homicide Act 2007). This contrasts with the money laundering legislation, which seeks to place the blame on an individual (money laundering reporting officer) (see Practice note, Failing to disclose offence: nominated officers in the regulated sector). HMT launched a consultation on an anti-money laundering supervisory scheme in April 2016, with the intention of making the UK financial system a hostile environment for illicit finances, while minimising the burden on legitimate businesses regulation but this summit may be an opportunity to discuss the introduction corporate criminal liability for money laundering.

In addition, in 2011 the OECD Guidelines were revised reflecting the UN Guiding Principles on Business and Human Rights, to put greater emphasis on human rights. These Guiding Principles impose an obligation on transnational corporations to respect human rights by avoiding, causing or contributing to adverse human rights impacts through their own activities. Companies must also prevent or mitigate adverse impacts that are directly linked through business relationships to the company’s operations, products or services, even if the company itself has not contributed that impact.

In order to be compliant with its obligations under the Guiding Principles a company must conduct thorough, meaningful and transparent due diligence processes. The guidance recognises that the complexity and scope of the due diligence undertaken may vary depending on the size of the business and the risk of human rights abuses, but in all cases, the process must be designed to identify, prevent, mitigate and account for potential adverse human rights impact. Leading UK companies are making progress.

Reports produced by Verite and Liberty Asia earlier this year highlighted the fact that bribery facilitates slavery, for example in the identification, transportation and control of people as labour. Local law enforcement agencies, immigration officers and transportation business owners may be bribed to move migrant workers who are then exploited to decrease the bottom line and increase profits. Using the same adequate procedures required to prevent bribery in a company will also assist the company in respect of transparency of supply chains and identifying any risk of labour exploitation.

Traidcraft research has shown that a few irresponsible UK connected companies operate in developing countries with unacceptable labour standards and unacceptable environmental standards causing pollution damaging both the health and livelihoods of the local population. No UK company has ever been prosecuted for an offence of causing serious harm abroad. Traidcraft would argue that the legislation is inadequate. The problems with enforcing domestic legislation are twofold:

• The identification principle.
• The extra-territorial nature of offending.

Traidcraft suggests that the corporate offence of failure to prevent under section 7 Bribery Act 2010 is the appropriate model. The “failure to prevent” offence obviates the need to identify the controlling mind of a company and instead makes the company liable for failing to prevent an employee or agent committing the offence.  David Green, the director of the SFO has long argued that a failure to prevent economic crime offence would equip the SFO to prosecute companies where the identification principle makes it almost impossible, particularly in respect of large transnational companies now. Andrew Selous, the Justice Secretary announced on 29 September last year that work had stopped on pursuing the creation of that offence. See blog, Failure to prevent economic crime fails to get off the ground.

David Green envisaged the offence would apply to the economic crimes identified in Schedule 17 to the Crime and Courts Act 2013 but it could also apply to causing serious pollution or serious injury. Businesses cut corners in labour rights and environmental compliance to reduce costs. There is an economic incentive to the crime, not a specific intention to cause injury or environmental damage.

Traidcraft suggests that the Corporate Manslaughter Act is ready for amendment to provide for extra-territorial application.

The government has committed to extending corporate criminal liability extra-jurisdictionally in respect of failure to prevent tax offences. It may be important to consider extending the failure to prevent offences to include slavery, health and safety offences, environmental offence and corporate manslaughter to ensure that a company has an ethical supply chain and that companies do not engage in exploitation in order to improve profits.

Clarifying what standards are expected of companies will both enhance our global reputation and improve ethical behaviour.  The Bribery Act 2010 has gone some way to improving accountability and systems in business rather than result in a swathe of prosecutions. It is only the most egregious offenders who are prosecuted, and it is suggested that this would also be the case in respect of an extension of the failure to prevent model across a range of corporate offences.

We wait with interest to see what agreement will be reached at the anti-corruption summit tomorrow.